Exchange-traded funds have exploded in popularity in recent years. ETFs can be built around exchanges, or specific sectors or strategies For example, you can invest in ETFs that are built around dividend stocks, feature Chinese stocks, or are comprised of technology stocks.
It is easy to understand why ETFs have been gaining in popularity, because there are many advantages to trading ETFs. For one thing, ETFs offer an easy way to diversify over a wide range of stocks without needing to buy shares in 10 or more stocks. They are also easier to manage. Instead of having to keep an eye on a large volume of stocks, investors simply have to pay attention to one ETF.
Because of the diversity, ETFs offer investors protection against the wild swings that can sometimes occur in individual securities. Even if one of the stocks being held in an ETF encounters a steep sell-off, the ETF is insulated from a wild swing of its own due to its other holdings.
ETFs are similar to mutual funds, but unlike mutual funds, which typically have a minimum investment, investors can buy into ETFs for considerably less. In addition, there is more flexibility with ETFs because you can trade them at any point during the day, whereas mutual funds are priced just once a day, at the end of each trading session.
While there are plenty of good reasons to trade ETFs, there are a few ETFs which have fallen recently and look like they are likely to continue sliding. Investors may be wise to sell these funds and find a new place to invest.